Clientele Limited (JSE: CLI) shareholders are facing a turbulent period after the company’s earnings announcement sent shockwaves through the market. The share price has plunged over 11% in the past month, with a further 3.64% decline on Monday, raising concerns about the company’s future prospects.
The core of the issue lies in Clientele’s recent trading statement, which revealed a significant decline in earnings per share (EPS) for the six months ended December 31, 2023. The company expects EPS to decrease by 35% to 55% compared to the same period last year. This translates to a potential EPS of between 26.74 cents and 41.85 cents, down from 75.55 cents previously.
The main cause behind this decline appears to be the implementation of the new IFRS 17 accounting standard. While the company maintains a “sound solvency and liquidity position,” the short-term impact on profitability is undeniable. Additionally, the five-year downward trend in EPS suggests deeper underlying issues that could be further amplified by the accounting change.
Technical
Clientele’s technical chart paints a similarly concerning picture. The share price has plunged below the critical 50-SMA (blue line), 100-SMA (orange line), and even the long-term 200-SMA (red line) on the daily chart. This signifies a strong bearish trend with significant downward momentum.
The downward-sloping RSI (42.10) reinforces this bearish sentiment, suggesting that a failure to fill the recent price gap could lead to a further decline towards the 1,026 cents support level. A sustained break below this level, coupled with significant trading volume, could trigger a steeper fall towards the 985 cents level and even the 29-month low of 920 cents.
However, a glimmer of hope remains. A short-term recovery could see the share price encounter initial resistance at 1,089 cents. A decisive break above this level with strong volume could signal a potential reversal. If this occurs, the bulls might set their sights on the 1,136 cents level and even the resistance at the triangle’s upper trendline of 1,200 cents.
Summary
Clientele Limited faces headwinds as it grapples with a substantial earnings downgrade, triggering a significant share price decline. With key moving averages breached and bearish momentum prevailing, the outlook remains cautious. Immediate support lies at 1,026 cents and 985 cents, while resistance at 1,089 cents may impede recovery efforts, while a break above 1,089 cents with strong volume could indicate a short-term reversal, with resistance at 1,136 cents and 1,200 cents.
Sources: TradingView, Clientele, iol.co.za, ShareData.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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